Incentivising distributors was the focal point of discussion at the meeting held in New Delhi on Thursday between finance ministry officials and the head honchos of top AMCs, officials from market regulator Sebi, industry body Amfi and FIFA, a pan-India body of independent financial advisors.
Those who had lobbied for mutual funds to come under the ambit of the Rajiv Gandhi Equity Scheme, however, were in for a disappointment as there was no indication from finance ministry officials to this effect and the Bill under consideration was still worded in favour of direct investment into equities.
?The focus was on what can be immediately done. The government has not assured anything as yet but there is a clear sense of urgency,? said the CEO of a top fund house. According FIFA chairman Dhruv Mehta, there was consensus on the need to incentivise distributors in some form or the other to facilitate the industry?s growth.
One of the ways of doing this, felt participants, was to increase the total expense ratio (TER) and allow fungibility in the way expenses are accounted for within the overall limit of TER. However, there was no agreement on the quantum of increase in the expense ratio and the final call is expected to be taken by market regulator Sebi. The MF industry has been pushing for Sebi?s permission to increase expense ratio from 2.25% to 2.5%. There was also talk of linking the fees paid to distributor with the kind of returns that the investor would earn. However, no suitable means of doing this was found during the meet.
Department of economic affairs (DEA) joint secretary Thomas Mathew asked Amfi to put up a tax proposal, which could include areas such as incentives on long-term savings or pension plans products and incentives on tax-saving products.
The need to do away with the KYC process at the investor end also found mention during the meet. Issues such as the possibility of fund houses launching pension funds was sidetracked as there was greater emphasis on the more immediate issues concerning the industry. A couple more high-profile meetings are slated to be held next week. The Amfi board is expected to meet in Mumbai on July 16, while the Sebi-appointed mutual fund advisory committee will meet on July 17.
The assets under management (AUM) of the mutual fund industry stood at R6.88 lakh crore as on June 30, 2012, according to data from Amfi?s website. The industry has been struggling ever since entry loads were done away with in August 2009. Equity schemes have seen inflows in only thirteen months after the entryload ban was enforced. In FY12, equity funds saw modest inflows of R122 crore and outflows in six out of the 12 months.